The International Monetary Fund (IMF) has approved a further US$695 million disbursement to Sri Lanka following the completion of the fifth and sixth reviews of the country's Extended Fund Facility (EFF) programme, bringing total IMF support since the island's 2022 sovereign debt default to approximately US$2.4 billion.
The latest tranche was approved by the IMF Executive Board and announced jointly from Washington and Colombo last week.
Completion of the combined fifth and sixth reviews provides Sri Lanka with immediate access to SDR508 million, equivalent to approximately US$695 million, under the 48-month programme that was first approved in March 2023.
With the latest disbursement, total IMF purchases under the arrangement have reached SDR1.778 billion, or roughly US$2.4 billion.
Sri Lanka's Extended Fund Facility programme was approved on 20 March 2023 with a total value of SDR2.286 billion, equivalent to approximately US$3 billion and representing 395 per cent of the country's IMF quota.
The programme was introduced following Sri Lanka's economic crisis and sovereign debt default in 2022, which triggered severe shortages of fuel, medicine and essential goods, as well as mass public protests that culminated in the resignation of former president and credibly accused war criminal Gotabaya Rajapaksa.
According to the IMF, Sri Lanka's performance under the programme has remained broadly positive.
All quantitative performance criteria for December 2025 were met, whilst prior actions relating to restoring fuel and electricity cost-recovery pricing were completed. The IMF noted that most structural benchmarks had either been achieved or implemented with delays.
However, it also stated that the continuous performance criteria relating to avoiding new external payment arrears and refraining from imposing or intensifying import restrictions had not been observed.
The latest funding is expected to provide short-term support to Sri Lanka's economy by strengthening foreign exchange reserves, improving liquidity and helping the government meet external debt obligations.
The IMF's approval also signals continued international support for Sri Lanka's economic reform programme, which includes fiscal consolidation, tax reforms, state-owned enterprise restructuring and governance measures aimed at restoring debt sustainability.
At the same time, the IMF warned that significant risks remain.
Following the Executive Board's discussion, IMF Deputy Managing Director and Acting Chair Kenji Okamura stated:
"Sri Lanka’s strong implementation under the EFF arrangement has continued despite challenging circumstances. Gains from the economic reform program helped preserve economic resilience and provided room to respond to cyclone Ditwah and the Middle East war."
However, he warned that developments in the Middle East had significantly worsened the country's outlook.
"The latter, however, has significantly worsened Sri Lanka’s economic outlook and tilted risks to the downside. For 2026, growth is projected to slow down to 3 percent. Higher oil prices would increase inflation and weaken the current account, which would also be adversely impacted by lower tourism receipts. The uncertainty, regarding the war’s intensity and duration, heightens risks to the outlook."
The IMF said fiscal easing during 2026 was justified given the impact of Cyclone Ditwah and global economic uncertainty. It noted that the Sri Lankan government was implementing temporary relief measures and allocating additional expenditure towards recovery and reconstruction efforts.
Nevertheless, the Fund stressed that Colombo must return to stricter fiscal targets from 2027 onwards.
"From 2027 onward, the authorities are appropriately committed to reverting to the primary balance target of 2.3 percent of GDP, as well as complying with the primary expenditure ceiling."
The IMF also cautioned that further reforms remain necessary despite progress achieved so far.
"Program performance remains generally strong, but efforts are required to complete public financial and investment management, and electricity sector reforms. Sustained revenue mobilization is crucial to make the tax system more efficient and growth-enhancing and should be spearheaded by developing a medium-term revenue strategy. Debt restructuring is nearing completion, but debt sustainability risks remain high."
The Fund further emphasised the need for continued monetary discipline, exchange-rate flexibility and structural reforms.
"Monetary policy should continue prioritizing price stability. Greater exchange rate flexibility and gradually phasing out the balance-of-payments measures remain critical to rebuild external buffers and resilience."
"Well-calibrated structural reforms and renewed public infrastructure are also needed to improve the investment climate and lift the growth potential."
While the IMF programme has been credited with helping stabilise Sri Lanka's macroeconomic position following the 2022 crisis, it has also been accompanied by significant austerity measures, including tax increases, reductions in public spending and utility price hikes.
